10-Q 1 c898-20170630x10q.htm 10-Q 20170630 Q2

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





Form 10-Q





QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: June 30, 2017 

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file no. 1-33741





Design Cover



A. H. Belo Corporation

(Exact name of registrant as specified in its charter)







 

 





 

 

Delaware

 

38-3765318

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

P. O. Box 224866, Dallas, Texas 75222-4866

 

(214) 977-8222

(Address of principal executive offices, including zip code)

 

(Registrant’s telephone number, including area code)



Former name, former address and former fiscal year, if changed since last report.

None

Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  



Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes      No  



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”  and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):





 

 

 

 

 

 

Large accelerated filer:  

 

Accelerated filer:  

 

Non-accelerated filer:  

 

Smaller reporting company:  

 

 

 

 

(Do not check if a smaller reporting company)

Emerging growth company  

 

 

 

 



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).      Yes      No 



Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest possible date.





 

 



 

 



 

Outstanding at

Class

 

July 27, 2017

Common Stock, $.01 par value

 

21,753,166





Total Common Stock consists of 19,280,601 shares of Series A Common Stock and 2,472,565 shares of Series B Common Stock. 

A. H. Belo Corporation Second Quarter 2017 on Form 10-Q     3


 

A. H. BELO CORPORATION



FORM 10-Q



TABLE OF CONTENTS





A. H. Belo Corporation Second Quarter 2017 on Form 10-Q     4


 

PART I

Item 1.  Financial Information



A. H. Belo Corporation and Subsidiaries

Consolidated Statements of Operations







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended June 30,

 

Six Months Ended June 30,

In thousands, except share and per share amounts (unaudited)

 

2017

 

2016

 

2017

 

2016

Net Operating Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Advertising and marketing services

 

$

36,022 

 

$

38,040 

 

$

71,226 

 

$

73,277 

Circulation

 

 

19,088 

 

 

19,821 

 

 

38,254 

 

 

40,173 

Printing, distribution and other

 

 

7,979 

 

 

8,765 

 

 

14,510 

 

 

15,659 

Total net operating revenue

 

 

63,089 

 

 

66,626 

 

 

123,990 

 

 

129,109 

Operating Costs and Expense:

 

 

 

 

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

 

24,853 

 

 

24,774 

 

 

52,728 

 

 

51,791 

Other production, distribution and operating costs

 

 

29,736 

 

 

29,898 

 

 

58,062 

 

 

58,229 

Newsprint, ink and other supplies

 

 

5,993 

 

 

6,461 

 

 

11,894 

 

 

12,519 

Depreciation

 

 

2,727 

 

 

2,605 

 

 

5,233 

 

 

5,237 

Amortization

 

 

199 

 

 

229 

 

 

399 

 

 

455 

Goodwill impairment

 

 

 —

 

 

 —

 

 

228 

 

 

 —

Total operating costs and expense

 

 

63,508 

 

 

63,967 

 

 

128,544 

 

 

128,231 

Operating income (loss)

 

 

(419)

 

 

2,659 

 

 

(4,554)

 

 

878 

Other income (expense), net

 

 

(93)

 

 

408 

 

 

(430)

 

 

487 

Income (Loss) from Continuing Operations Before Income Taxes

 

 

(512)

 

 

3,067 

 

 

(4,984)

 

 

1,365 

Income tax provision

 

 

293 

 

 

2,393 

 

 

251 

 

 

1,284 

Net Income (Loss)

 

 

(805)

 

 

674 

 

 

(5,235)

 

 

81 

Net income (loss) attributable to noncontrolling interests

 

 

 —

 

 

(19)

 

 

 —

 

 

20 

Net Income (Loss) Attributable to A. H. Belo Corporation

 

$

(805)

 

$

693 

 

$

(5,235)

 

$

61 



 

 

 

 

 

 

 

 

 

 

 

 

Per Share Basis

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to A. H. Belo Corporation

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.04)

 

$

0.03 

 

$

(0.24)

 

$

0.00 

Number of common shares used in the per share calculation:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

21,743,390 

 

 

21,614,260 

 

 

21,717,032 

 

 

21,564,200 

Diluted

 

 

21,743,390 

 

 

21,762,559 

 

 

21,717,032 

 

 

21,724,876 



See the accompanying Notes to the Consolidated Financial Statements.

 

A. H. Belo Corporation Second Quarter 2017 on Form 10-Q     5


 

A. H. Belo Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended June 30,

 

Six Months Ended June 30,

In thousands (unaudited)

 

2017

 

2016

 

2017

 

2016

Net Income (Loss)

 

$

(805)

 

$

674 

 

$

(5,235)

 

$

81 

Other Comprehensive Income (Loss):

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of actuarial (gains) losses, net of tax

 

 

56 

 

 

(24)

 

 

113 

 

 

(32)

Total other comprehensive income (loss)

 

 

56 

 

 

(24)

 

 

113 

 

 

(32)

Comprehensive Income (Loss)

 

 

(749)

 

 

650 

 

 

(5,122)

 

 

49 

Comprehensive income (loss) attributable to noncontrolling interests

 

 

 —

 

 

(19)

 

 

 —

 

 

20 

Total Comprehensive Income (Loss) Attributable to A. H. Belo Corporation

 

$

(749)

 

$

669 

 

$

(5,122)

 

$

29 



See the accompanying Notes to the Consolidated Financial Statements.

 

A. H. Belo Corporation Second Quarter 2017 on Form 10-Q     6


 

A. H. Belo Corporation and Subsidiaries

Consolidated Balance Sheets







 

 

 

 

 

 

  

 

 

 

 

 

 



 

June 30,

 

December 31,

In thousands, except share amounts (unaudited)

 

2017

 

2016

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

64,856 

 

$

80,071 

Accounts receivable (net of allowance of $942 and $1,115 at June 30, 2017
and December 31, 2016, respectively)

 

 

23,960 

 

 

29,114 

Inventories

 

 

3,071 

 

 

3,386 

Prepaids and other current assets

 

 

10,789 

 

 

9,553 

Assets held for sale

 

 

8,740 

 

 

 —

Total current assets

 

 

111,416 

 

 

122,124 

Property, plant and equipment, at cost

 

 

441,024 

 

 

445,874 

Less accumulated depreciation

 

 

(407,493)

 

 

(402,115)

Property, plant and equipment, net

 

 

33,531 

 

 

43,759 

Intangible assets, net

 

 

4,473 

 

 

4,872 

Goodwill

 

 

13,973 

 

 

14,201 

Other assets

 

 

6,888 

 

 

7,775 

Total assets

 

$

170,281 

 

$

192,731 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

8,411 

 

$

9,036 

Accrued compensation and benefits

 

 

8,479 

 

 

8,657 

Other accrued expense

 

 

4,440 

 

 

6,318 

Advance subscription payments

 

 

12,832 

 

 

13,243 

Total current liabilities

 

 

34,162 

 

 

37,254 

Long-term pension liabilities

 

 

52,989 

 

 

54,843 

Other post-employment benefits

 

 

2,321 

 

 

2,329 

Other liabilities

 

 

6,456 

 

 

6,483 

Total liabilities

 

 

95,928 

 

 

100,909 

Noncontrolling interest - redeemable

 

 

 —

 

 

2,670 

Shareholders’ equity:

 

 

 

 

 

 

Preferred stock, $.01 par value; Authorized 2,000,000 shares; none issued

 

 

 —

 

 

 —

Common stock, $.01 par value; Authorized 125,000,000 shares

 

 

 

 

 

 

Series A: issued 20,697,482 and 20,620,461 shares at June 30, 2017
and December 31, 2016, respectively

 

 

208 

 

 

207 

Series B: issued 2,472,565 and 2,472,680 shares at June 30, 2017
and December 31, 2016, respectively

 

 

24 

 

 

24 

Treasury stock, Series A, at cost; 1,416,881 shares held at June 30, 2017
and December 31, 2016

 

 

(11,233)

 

 

(11,233)

Additional paid-in capital

 

 

494,671 

 

 

499,552 

Accumulated other comprehensive loss

 

 

(39,195)

 

 

(39,308)

Accumulated deficit

 

 

(370,122)

 

 

(361,324)

Total shareholders’ equity attributable to A. H. Belo Corporation

 

 

74,353 

 

 

87,918 

Noncontrolling interests

 

 

 —

 

 

1,234 

Total shareholders’ equity

 

 

74,353 

 

 

89,152 

Total liabilities and shareholders’ equity

 

$

170,281 

 

$

192,731 



See the accompanying Notes to the Consolidated Financial Statements.

A. H. Belo Corporation Second Quarter 2017 on Form 10-Q     7


 

A. H. Belo Corporation and Subsidiaries

Consolidated Statements of Shareholders’ Equity









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Common Stock

 

 

 

Treasury Stock

 

 

 

 

 

 

 

 

In thousands, except share amounts  (unaudited)

Shares   
Series A

Shares
Series B

Amount

Additional
Paid-in
Capital

 

Shares
Series A

Amount

Accumulated
Other
Comprehensive
Loss

Accumulated
Deficit

Noncontrolling
Interests

Total

Balance at December 31, 2015

20,522,503 

2,387,509 

$

229 

$

500,449 

 

(1,416,881)

$

(11,233)

$

(38,442)

$

(333,222)

$

1,069 

$

118,850 

Net income

 —

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

61 

 

 

68 

Other comprehensive loss

 —

 —

 

 —

 

 —

 

 —

 

 —

 

(32)

 

 —

 

 —

 

(32)

Distributions to noncontrolling interests

 —

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(165)

 

(165)

Capital contributions of noncontrolling interests

 —

 —

 

 —

 

(396)

 

 —

 

 —

 

 —

 

 —

 

396 

 

 —

Issuance of shares for restricted stock units

97,203 

 —

 

 

(1)

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

Issuance of shares for stock option exercises

 —

85,926 

 

 

155 

 

 —

 

 —

 

 —

 

 —

 

 —

 

156 

Share-based compensation

 —

 —

 

 —

 

448 

 

 —

 

 —

 

 —

 

 —

 

 —

 

448 

Conversion of Series B to Series A

649 

(649)

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

Dividends

 —

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(5,265)

 

 —

 

(5,265)

Balance at June 30, 2016

20,620,355 

2,472,786 

$

231 

$

500,655 

 

(1,416,881)

$

(11,233)

$

(38,474)

$

(338,426)

$

1,307 

$

114,060 

Balance at December 31, 2016

20,620,461 

2,472,680 

$

231 

$

499,552 

 

(1,416,881)

$

(11,233)

$

(39,308)

$

(361,324)

$

1,234 

$

89,152 

Net loss

 —

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(5,235)

 

 —

 

(5,235)

Other comprehensive income

 —

 —

 

 —

 

 —

 

 —

 

 —

 

113 

 

 —

 

 —

 

113 

Distributions to noncontrolling interests

 —

 —

 

 —

 

 —

 

 —

 

 —

 

 

 

 —

 

(118)

 

(118)

Issuance of shares for restricted stock units

76,906 

 —

 

 

(1)

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

Share-based compensation

 —

 —

 

 —

 

626 

 

 —

 

 —

 

 —

 

 —

 

 —

 

626 

Purchases of noncontrolling interests

 —

 —

 

 —

 

(5,506)

 

 —

 

 —

 

 —

 

 —

 

(1,116)

 

(6,622)

Conversion of Series B to Series A

115 

(115)

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

Dividends

 —

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(3,563)

 

 —

 

(3,563)

Balance at June 30, 2017

20,697,482 

2,472,565 

$

232 

$

494,671 

 

(1,416,881)

$

(11,233)

$

(39,195)

$

(370,122)

$

 —

$

74,353 



See the accompanying Notes to the Consolidated Financial Statements.

 

A. H. Belo Corporation Second Quarter 2017 on Form 10-Q     8


 

A. H. Belo Corporation and Subsidiaries

Consolidated Statements of Cash Flows









 

 

 

 

 

 



 

 

 

 

 

 



 

Six Months Ended June 30,

In thousands (unaudited)

 

2017

 

2016

Operating Activities

 

 

 

 

 

 

Net income (loss)

 

$

(5,235)

 

$

81 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

5,632 

 

 

5,692 

Net periodic pension and other post-employment benefit

 

 

(1,717)

 

 

(1,749)

Share-based compensation

 

 

626 

 

 

448 

Deferred income taxes

 

 

 —

 

 

Loss on investment related activity

 

 

250 

 

 

 —

Gain on disposal of fixed assets

 

 

 —

 

 

(325)

Goodwill impairment

 

 

228 

 

 

 —

Changes in working capital and other operating assets and liabilities, net of acquisitions:

 

 

 

 

 

 

Accounts receivable

 

 

5,154 

 

 

6,041 

Inventories, prepaids and other current assets

 

 

(921)

 

 

(2,006)

Other assets

 

 

637 

 

 

443 

Accounts payable

 

 

(625)

 

 

(748)

Compensation and benefit obligations

 

 

(175)

 

 

847 

Other accrued expenses

 

 

(890)

 

 

(518)

Advance subscription payments

 

 

(411)

 

 

101 

Other post-employment benefits

 

 

(31)

 

 

(93)

Net cash provided by operating activities

 

 

2,522 

 

 

8,223 

Investing Activities

 

 

 

 

 

 

Purchases of assets

 

 

(4,789)

 

 

(3,174)

Net cash used for investing activities

 

 

(4,789)

 

 

(3,174)

Financing Activities

 

 

 

 

 

 

Purchases of noncontrolling interests

 

 

(9,231)

 

 

 —

Dividends paid

 

 

(3,538)

 

 

(3,503)

Proceeds from other financing activities

 

 

 —

 

 

2,566 

Distributions to noncontrolling interests

 

 

(179)

 

 

(264)

Proceeds from exercise of stock options

 

 

 —

 

 

156 

Net cash used for financing activities

 

 

(12,948)

 

 

(1,045)

Net increase (decrease) in cash and cash equivalents

 

 

(15,215)

 

 

4,004 

Cash and cash equivalents, beginning of period

 

 

80,071 

 

 

78,380 

Cash and cash equivalents, end of period

 

$

64,856 

 

$

82,384 



 

 

 

 

 

 

Supplemental Disclosures

 

 

 

 

 

 

Income tax paid, net (refund)

 

$

1,163 

 

$

1,289 

Noncash investing and financing activities:

 

 

 

 

 

 

Investments in property, plant and equipment payable

 

 

160 

 

 

 —

Dividends payable

 

 

1,788 

 

 

 —



See the accompanying Notes to the Consolidated Financial Statements.

 



 

A. H. Belo Corporation Second Quarter 2017 on Form 10-Q     9


 

A. H. Belo Corporation and Subsidiaries

Notes to the Consolidated Financial Statements

 

Note 1:  Basis of Presentation and Recently Issued Accounting Standards



Description of Business.    A. H. Belo Corporation and subsidiaries are referred to collectively herein as “A. H. Belo” or the “Company.” The Company, headquartered in Dallas, Texas, is a leading local news and information publishing company with commercial printing, distribution and direct mail capabilities, as well as expertise in emerging media and digital marketing. With a continued focus on extending the Company’s media platform, A. H. Belo delivers news and information in innovative ways to a broad spectrum of audiences with diverse interests and lifestyles. The Company publishes The Dallas Morning News (www.dallasnews.com), Texas’ leading newspaper and winner of nine Pulitzer Prizes; the Denton Record-Chronicle (www.dentonrc.com), a daily newspaper operating in Denton, Texas, and various niche publications targeting specific audiences. A. H. Belo also offers digital marketing solutions through DMV Digital Holdings Company (“DMV Holdings”) and Your Speakeasy, LLC (“Speakeasy”), and provides event activation, promotion and marketing services through DMN CrowdSource LLC (“CrowdSource”).



Basis of Presentation.     The interim consolidated financial statements included herein are unaudited; however, they include adjustments of a normal recurring nature which, in the Company’s opinion, are necessary to present fairly the interim consolidated financial information as of and for the periods indicated. All significant intercompany balances and transactions have been eliminated in consolidation. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016. All dollar amounts presented herein, except share and per share amounts, are in thousands, unless the context indicates otherwise.



The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and (iii) the reported amount of net operating revenues and expenses recognized during the periods presented. Adjustments made with respect to the use of estimates often relate to improved information not previously available. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of financial statements; accordingly, actual results could differ from these estimates.



New Accounting Pronouncements.    The Financial Accounting Standards Board (“FASB”) issued the following accounting pronouncements and guidance which may be applicable to the Company but have not yet become effective.



In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09 – Revenue from Contracts with Customers (Topic 606). This guidance prescribes a single comprehensive model for entities to use in the accounting of revenue arising from contracts with customers. The core principle contemplated by this new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount reflecting the consideration the entity expects to be entitled in exchange for those goods or services. New disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers are also required. Since May 2014, the FASB issued clarifying updates to the new standard specifically to address certain core principles including the identification of performance obligations, licensing guidance, the assessment of the collectability criterion, the presentation of taxes collected from customers, noncash considerations, contract modifications, and completed contracts at transition. The new guidance will supersede virtually all existing revenue guidance under GAAP and is effective for fiscal years beginning after December 31, 2017. There are two transition options available to entities, the full retrospective approach, in which the Company would restate prior periods, or the modified retrospective approach. The Company currently anticipates adopting ASU 2014-09 using the modified retrospective approach as of January 1, 2018. This approach consists of recognizing the cumulative effect of initially applying the standard as an adjustment to opening retained earnings.



The Company coordinated a team of key stakeholders to develop a bottom-up approach to analyze the impact of the new standard on its portfolio of contracts. Based upon the Company’s initial evaluation, some of the issues currently being reviewed include the impact of gross versus net, level of disaggregation of revenue disclosed in the Company’s financial statements and evaluating the standalone selling price related to certain performance obligations. The Company is currently quantifying the impact that the updated guidance will have on the Company’s financial statements and related disclosures.



In February 2016, the FASB issued ASU 2016-02 – Leases (Topic 842). This update requires an entity to recognize a right-of-use asset and a lease liability for virtually all of its leases. The liability will be equal to the present value of lease payments. The asset will generally be based on the liability. For income statement purposes operating leases will result in straight-line expense and finance leases will result in expenses similar to current capital leases. The guidance also requires additional disclosures to enable users of financial statements to understand the amount, timing and uncertainty of cash flows arising from leases. The guidance will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years and will be applied retrospectively. Early adoption is

A. H. Belo Corporation Second Quarter 2017 on Form 10-Q     10


 

permitted. The Company is currently evaluating the requirements of this update and has not yet determined its impact on the Company’s consolidated financial statements.



In January 2017, the FASB issued ASU 2017-04 – Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This update simplifies the subsequent measurement of goodwill and eliminates Step 2 from the goodwill impairment test. The guidance will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the requirements of this update and has not yet determined its impact on the Company’s consolidated financial statements.



In February 2017, the FASB issued ASU 2017-06 – Plan Accounting – Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962) and Health and Welfare Benefit Plans (Topic 965): Employee Benefit Plan Master Trust Reporting. This update clarifies the presentation requirements for a plan’s interest in a master trust and requires more detailed disclosures of the plan’s interest in the master trust. The guidance will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the requirements of this update and has not yet determined its impact on the Company’s consolidated financial statements.



In March 2017, the FASB issued ASU 2017-07 – CompensationRetirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This update clarifies the presentation and classification of the components of net periodic benefit costs in the Consolidated Statement of Operations. The guidance will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the requirements of this update and has not yet determined its impact on the Company’s consolidated financial statements.



Note 2:  Segment Reporting



In the first quarter of 2017, in conjunction with the promotion of Grant Moise from Senior Vice President Business Development / Niche Products to General Manager of The Dallas Morning News and Executive Vice President of A. H. Belo, the Company reorganized its two reportable segments based on changes in reporting structure and the go-to-market for the Company’s service and product offerings. The two reportable segments are Publishing and Marketing Services.



The Publishing segment includes the Company’s core print and digital operations associated with its newspapers, niche publications and related websites. These operations generate revenue from sales of advertising within its newspaper and digital platforms, subscription and retail sales of its newspapers, sponsorship advertising for events, commercial printing and distribution services, primarily related to national and regional newspapers, and preprint advertisers. Businesses within the  Publishing segment leverage the production facilities, subscriber and advertiser base, and digital news platforms to provide additional contribution margin. The Company evaluates Publishing operations based on operating profit and cash flows from operating activities.



The Marketing Services segment includes the operations of DMV Holdings, Speakeasy and digital advertising through Connect (programmatic advertising). The Company operates the portfolio of assets within its Marketing Services segment as separate businesses that sell digital marketing and advertising through different channels, including programmatic advertising and content marketing within the social media environment.



Based on the organization of the Company’s structure and organizational chart, we believe the Company’s chief operating decision makers (the “CODMs”) are its Chief Executive Officer, Jim Moroney, and Grant Moise, the General Manager of The Dallas Morning News and Executive Vice President of A. H Belo Corporation. The CODMs allocate resources and capital to the Publishing and Marketing Services segments at the segment level.

A. H. Belo Corporation Second Quarter 2017 on Form 10-Q     11


 

The following tables show summarized financial information for the Company’s reportable segments. Due to the first quarter 2017 reorganization of the Company’s two reportable segments, the prior year periods financial information by segment were recast for comparative purposes.







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended June 30,

 

Six Months Ended June 30,



 

2017

 

2016

 

2017

 

2016



 

 

 

 

(Recast)

 

 

 

 

(Recast)

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

Publishing

 

$

54,822 

 

$

60,575 

 

$

108,313 

 

$

117,080 

Marketing Services

 

 

8,267 

 

 

6,051 

 

 

15,677 

 

 

12,029 

Total

 

$

63,089 

 

$

66,626 

 

$

123,990 

 

$

129,109 



 

 

 

 

 

 

 

 

 

 

 

 

Operating Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

Publishing

 

$

(1,208)

 

$

1,678 

 

$

(5,933)

 

$

(802)

Marketing Services

 

 

789 

 

 

981 

 

 

1,379 

 

 

1,680 

Total

 

$

(419)

 

$

2,659 

 

$

(4,554)

 

$

878 



 

 

 

 

 

 

 

 

 

 

 

 

Noncash Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Publishing

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation

 

$

2,706 

 

$

2,587 

 

$

5,197 

 

$

5,198 

Amortization

 

 

 —

 

 

26 

 

 

 —

 

 

52 

Goodwill impairment

 

 

 —

 

 

 —

 

 

228 

 

 

 —

Total

 

$

2,706 

 

$

2,613 

 

$

5,425 

 

$

5,250 



 

 

 

 

 

 

 

 

 

 

 

 

Marketing Services

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation

 

$

21 

 

$

18 

 

$

36 

 

$

39 

Amortization

 

 

199 

 

 

203 

 

 

399 

 

 

403 

Total

 

$

220 

 

$

221 

 

$

435 

 

$

442 







 

 

 

 

 

 



 

 

 

 

 

 



 

June 30,

 

December 31,



 

2017

 

2016



 

 

 

 

(Recast)

Total Assets

 

 

 

 

 

 

Publishing

 

$

147,495 

 

$

170,820 

Marketing Services

 

 

22,786 

 

 

21,911 

Total

 

$

170,281 

 

$

192,731 







Note 3: Acquisitions



On February 16, 2017, the Company acquired the remaining 30 percent voting interest in Speakeasy for a cash purchase price of $2,111, and on March 2, 2017, the Company acquired the remaining 20 percent voting interest in DMV Holdings for a cash purchase price of $7,120.



The initial purchase of 80 percent voting interest in DMV Holdings occurred in January 2015 for a cash purchase price of $14,110. DMV Digital Holdings Company holds all outstanding ownership interests of three Dallas-based businesses, Distribion, Inc., Vertical Nerve, Inc. and CDFX, LLC. These businesses specialize in local marketing automation, search engine marketing, and direct mail and promotional products, respectively.



These acquisitions complement the product and service offerings currently available to A. H. Belo clients, thereby strengthening the Company’s diversified product portfolio and allowing for greater penetration in a competitive advertising market.



Pro-rata distributions.    In connection with the 2015 acquisition of 80 percent voting interest in DMV Holdings, the shareholder agreement provided for a pro-rata distribution of 50 percent and 100 percent of DMV Holdings’ free cash flow for fiscal years 2016 and 2015, respectively. Free cash flow is defined as earnings before interest, taxes, depreciation and amortization less capital expenditures, debt amortization and interest expense, as applicable. In the six months ended June 30, 2017 and 2016, the Company recorded pro-rata distributions to noncontrolling interests of $163 and $264, respectively, in connection with this agreement based on 2016 and 2015 free cash flow as defined, respectively.

A. H. Belo Corporation Second Quarter 2017 on Form 10-Q     12


 

Redeemable noncontrolling interest.    Also, in connection with the 2015 acquisition of 80 percent voting interest in DMV Holdings, the Company entered into a shareholder agreement which provided for a put option to a noncontrolling shareholder. The put option provided the shareholder with the right to require the Company to purchase up to 25 percent of the noncontrolling ownership interest in DMV Holdings between the second and third anniversaries of the agreement and up to 50 percent of the noncontrolling ownership interest in DMV Holdings between the fourth and fifth anniversaries of the agreement.



Redeemable noncontrolling interest was recorded at fair value on the acquisition date and the carrying value was adjusted each period for its share of the earnings related to DMV Holdings and for any distributions.  The carrying value was also adjusted for the change in fair value, which was based on the estimated redemption value as of December 31, 2016. Adjustments were recorded to retained earnings or additional paid in capital, as applicable, and have no effect to earnings of the Company. During the six months ended June 30, 2017 and 2016, redeemable noncontrolling interest was decreased by $61 and $99, respectively, for distributions related to the 2016 and 2015 free cash flow, respectively, as required under the shareholder agreement.



The exercisability of the noncontrolling interest put option was outside the control of the Company. As such, the redeemable noncontrolling interest of $2,670 was reported in the mezzanine equity section of the Consolidated Balance Sheet as of December 31, 2016. As a result of the purchase of the remaining 20 percent voting interest in DMV Holdings, the shareholder agreement was terminated and the redeemable noncontrolling interest was eliminated as of March 31, 2017.



Note 4Goodwill and Intangible Assets



The following table shows goodwill and other intangible assets by reportable segment as of June 30, 2017 and December 31, 2016. Due to the first quarter 2017 reorganization of the Company’s two reportable segments, the prior year period financial information by segment was recast for comparative purposes.







 

 

 

 

 



 

 

 

 

 



June 30,

 

December 31,



2017

 

2016



 

 

 

(Recast)

Goodwill

 

 

 

 

 

Publishing

$

 —

 

$

228 

Marketing Services

 

13,973 

 

 

13,973 

Total

$

13,973 

 

$

14,201 



 

 

 

 

 

Intangible Assets

 

 

 

 

 

Publishing

 

 

 

 

 

Cost

$

 —

 

$

240 

Accumulated Amortization

 

 —

 

 

(240)

Net Carrying Value

$

 —

 

$

 —

Marketing Services

 

 

 

 

 

Cost

$

6,470 

 

$

6,470 

Accumulated Amortization

 

(1,997)

 

 

(1,598)

Net Carrying Value

$

4,473 

 

$

4,872 



In the six months ended June 30, 2017, the Publishing segment’s fully amortized intangible assets of $240 of customer relationships were written-off and had no remaining useful life.  Intangible assets consist of $4,950 of customer relationships with estimated useful lives of 10 years and $1,520 of developed technology with an estimated useful life of five years. Aggregate amortization expense was $199 and $399 for the three and six months ended June 30, 2017,  respectively, and $229 and $455 for the three and six months ended June 30, 2016, respectively.



Certain goodwill and intangible assets previously reported in the Marketing Services segment were moved to the Publishing segment as a result of the first quarter 2017 segment reorganization.  The Publishing reporting unit’s goodwill was determined to be fully impaired as of December 31, 2016. Therefore, the Company recorded a  noncash goodwill impairment charge of $228 in the first quarter of 2017.



The Company tested goodwill for impairment as of December 31, 2016 at the reporting unit level using a discounted cash flow methodology with a peer-based, risk-adjusted weighted average cost of capital, combined with a market approach using peer-based earnings multiples. The Company believes the use of a discounted cash flow approach, combined with the market approach, is the most reliable indicator of the estimated fair values of the businesses.



A. H. Belo Corporation Second Quarter 2017 on Form 10-Q     13


 

Because the Company’s annual test indicated that the Publishing reporting unit’s carrying value exceeded its estimated fair value, a second phase of the goodwill impairment test (“Step 2”) was performed specific to the Publishing reporting unit. Under Step 2, the fair value of the Publishing reporting unit’s assets and liabilities were estimated, including intangible assets, for the purpose of deriving an estimate of the implied fair value of goodwill. The implied fair value of goodwill was then compared to the recorded goodwill to determine the amount of the impairment.



Upon completion of the annual test, the Publishing reporting unit’s goodwill was determined to be impaired, and the Company recorded a noncash goodwill impairment charge of $22,682 in the fourth quarter of 2016, fully impairing the Publishing reporting unit’s goodwill.



Note 5Long-term Incentive Plan



A. H. Belo sponsors a long-term incentive plan (the “Plan”) under which 8,000,000 shares of the Company’s Series A and Series B common stock are authorized for equity-based awards. Awards may be granted to A. H. Belo employees and outside directors in the form of non-qualified stock options, incentive stock options, restricted share awards,  restricted stock units (“RSUs”), performance shares, performance units or stock appreciation rights. In addition, stock options may be accompanied by full and limited stock appreciation rights. Rights and limited stock appreciation rights may also be issued without accompanying stock options. Awards under the Plan were also granted to holders of stock options issued by A. H. Belo’s former parent company in connection with the Company’s separation from its former parent in 2008. Due to the expiration of the Plan on February 8, 2018, A. H. Belo implemented, and shareholders approved, a new long-term incentive plan (the “2017 Plan”) under which 8,000,000 shares of the Company’s Series A and Series B common stock are authorized for equity-based awards. Like its predecessor plan, awards under the 2017 Plan may be granted to A. H. Belo employees and outside directors in the form of non-qualified stock options, incentive stock options, restricted share awards, RSUs, performance shares, performance units or stock appreciation rights. No grants have yet been made under the 2017 Plan.



Stock Options.    Stock options granted under the Plan are fully vested and exercisable. No options have been granted since 2009, and all compensation expense associated with stock options has been fully recognized as of June 30, 2017.







 

 

 

 



 

 

 

 



Number of
Options

 

Weighted Average
Exercise Price

Outstanding at December 31, 2016

114,979 

 

$

8.21 

Canceled

(14,635)

 

 

20.16 

Outstanding at June 30, 2017

100,344 

 

 

6.46 



As of June 30, 2017, the aggregate intrinsic value of outstanding options was $10 and the weighted average remaining contractual life of the Company’s stock options was 1.1 years.  The aggregate intrinsic value of options exercised in the three and six months ended June 30,  2016,  was $183 and $300, respectively.



Restricted Stock Units.    The Company’s RSUs have service and/or performance conditions and, subject to retirement eligibility, vest over a period of up to three years. Vested RSUs are redeemed 60 percent in A. H. Belo Series A common stock and 40 percent in cash over a period of up to three years. As of June 30, 2017, the liability for the portion of the awards to be redeemed in cash was $771. The table below sets forth a summary of RSU activity under the Plan.







 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Total
RSUs

 

Issuance of
Common
Stock

 

RSUs
Redeemed in
Cash

 

Cash
Payments at
Closing Price
of Stock

 

Weighted
Average Price
on Date of
Grant

Non-vested at December 31, 2016

121,131 

 

 

 

 

 

 

 

 

$

5.65 

Granted

284,868 

 

 

 

 

 

 

 

 

 

6.11 

Vested and outstanding

(159,212)

 

 

 

 

 

 

 

 

 

5.71 

Vested and issued

(22,734)

 

13,634 

 

9,100 

 

$

57 

 

 

6.90 

Non-vested at June 30, 2017

224,053 

 

 

 

 

 

 

 

 

 

6.07 



For the six months ended June 30, 2017, the Company issued 63,272 shares of Series A common stock and 42,189 shares were redeemed in cash for RSUs that were previously vested as of December 31, 2016. In addition, there were 290,825 and 237,074 RSUs that were vested and outstanding as of June 30, 2017 and December 31, 2016, respectively.



A. H. Belo Corporation Second Quarter 2017 on Form 10-Q     14


 

The fair value of RSU grants is determined using the closing trading price of the Company’s Series A common stock on the grant date. As of June 30, 2017, unrecognized compensation expense related to non-vested RSUs totaled $1,018, which is expected to be recognized over a weighted average period of approximately 1.0 year.



Compensation Expense.     A. H. Belo recognizes compensation expense for awards granted under the Plan over the vesting period of the award. Compensation expense related to RSUs granted under the Plan is set forth in the table below.





 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



RSUs

Redeemable

in Stock

 

RSUs
 Redeemable
 in Cash

 

Total
RSU Awards
 Expense

Three Months Ended June 30,

 

 

 

 

 

 

 

 

2017

$

185 

 

$

38 

 

$

223 

2016

 

76 

 

 

69 

 

 

145 

Six Months Ended June 30,

 

 

 

 

 

 

 

 

2017

$

626 

 

$

317 

 

$

943 

2016

 

448 

 

 

301 

 

 

749 









Note 6:  Income Taxes



The interim provision for income taxes reflects the Company’s estimate of the effective tax rate expected to be applied for the full fiscal year, adjusted for any discrete transactions which are reported in the period in which they occur. The estimated annual effective tax rate is reviewed each quarter based on the Company’s estimated income tax expense for the year. Under certain circumstances, the Company may be precluded from estimating an annual effective tax rate. Such circumstances may include periods in which tax rates vary significantly due to earnings trends, in addition to the existence of significant permanent or temporary differences. Under such circumstances, a discrete tax rate is calculated for the period.



The Company recognized income tax provision from continuing operations of $293 and $2,393 for the three months ended June 30, 2017 and 2016, respectively, and $251 and $1,284 for the six months ended June 30, 2017 and 2016, respectively. Effective income tax rates from continuing operations were (5.0) percent and 94.1 percent for the six months ended June 30, 2017 and 2016, respectively. The effective income tax rate for the six months ended June 30, 2017, was due to the federal tax benefit fully reserved with a valuation allowance and the effect of the Texas margin tax. The 2017 effective income tax rate was lower when compared to the prior year period due to taxable income generated from operations and the disposition of certain fixed assets in 2016.



Note 7Pension and Other Retirement Plans



Defined Benefit Plans.   The Company sponsors the A. H. Belo Pension Plans (the “Pension Plans”), which provide benefits to approximately 2,300 current and former employees of the Company. A. H. Belo Pension Plan I provides benefits to certain current and former employees primarily employed with The Dallas Morning News or the A. H. Belo corporate offices. A. H. Belo Pension Plan II provides benefits to certain former employees of The Providence Journal Company. This obligation was retained by the Company upon the sale of the newspaper operations of The Providence Journal.  No additional benefits are accruing under the A. H. Belo Pension Plans, as future benefits were frozen.



No contributions are required to the A. H. Belo Pension Plans in 2017 under the applicable tax and labor laws governing pension plan funding.



Net Periodic Pension Benefit



The Company’s estimates of net periodic pension expense or benefit are based on the expected return on plan assets, interest on the projected benefit obligations and the amortization of actuarial gains and losses that are deferred in accumulated other comprehensive loss. The table below sets forth components of net periodic pension benefit.







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended June 30,

 

Six Months Ended June 30,



 

2017

 

2016

 

2017

 

2016

Interest cost

 

$

2,386 

 

$

2,524 

 

$

4,772 

 

$

5,049 

Expected return on plans' assets

 

 

(3,314)

 

 

(3,397)

 

 

(6,627)

 

 

(6,793)

Amortization of actuarial loss

 

 

74 

 

 

20 

 

 

149 

 

 

31 

Net periodic pension benefit

 

$

(854)

 

$

(853)

 

$

(1,706)

 

$

(1,713)



A. H. Belo Corporation Second Quarter 2017 on Form 10-Q     15


 

Defined Contribution Plans.   The A. H. Belo Savings Plan (the “Savings Plan”), a defined contribution 401(k) plan, covers substantially all employees of A. H. Belo. Participants may elect to contribute a portion of their pretax compensation as provided by the Savings Plan and the Internal Revenue Code. Employees can contribute up to 100 percent of their annual eligible compensation less required withholdings and deductions up to statutory limits. The Company provides an ongoing dollar-for-dollar match of eligible employee contributions, up to 1.5 percent of the employees’ compensation on a per-pay-period basis. During the three months ended June 30, 2017 and 2016, the Company recorded expense of $231 and $222, respectively,  and during the six months ended June 30, 2017 and 2016, the Company recorded expense of $495 and $501, respectively,  for matching contributions to the Savings Plan.

 

Note 8Shareholders’ Equity



Dividends.    On May 10, 2017, the Company’s board of directors declared  an $0.08 per share dividend to shareholders of record and holders of RSUs as of the close of business on August 11, 2017, which is payable on September 1, 2017. During the three months ended June 30, 2017, the Company recorded $1,788 to accrue for dividends declared but not yet paid.



Accumulated other comprehensive loss.    Accumulated other comprehensive loss consists of actuarial gains and losses attributable to the A. H. Belo Pension Plans,  gains and losses resulting from Pension Plans’ amendments and other actuarial experience attributable to other post-employment benefit (“OPEB”) plans. The Company records amortization of the components of accumulated other comprehensive loss in employee compensation and benefits in its Consolidated Statements of Operations. Gains and losses associated with the A. H. Belo Pension Plans are amortized over the weighted average remaining life expectancy of the Pension Plans’ participants. Gains and losses associated with the Company’s OPEB plans are amortized over the average remaining service period of active OPEB plans’ participants. Net deferred tax assets associated with the accumulated other comprehensive loss are fully reserved.



The table below sets forth the changes in accumulated other comprehensive loss, net of tax, as presented in the Company’s consolidated financial statements.







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended June 30,



 

2017

 

2016



 

Total

 

Defined
benefit pension
plans

 

Other post-

employment

benefit plans

 

Total

 

Defined
benefit pension
plans

 

Other post-

employment

benefit plans

Balance, beginning of period

 

$

(39,251)

 

$

(39,662)

 

$

411 

 

$

(38,450)

 

$

(38,887)

 

$

437 

Amortization

 

 

56 

 

 

74 

 

 

(18)

 

 

(24)

 

 

20 

 

 

(44)

Balance, end of period

 

$

(39,195)

 

$

(39,588)

 

$

393 

 

$

(38,474)

 

$

(38,867)

 

$

393 









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Six Months Ended June 30,



 

2017

 

2016



 

Total

 

Defined
benefit pension
plans

 

Other post-
employment
benefit plans

 

Total

 

Defined
benefit pension
plans

 

Other post-
employment
benefit plans

Balance, beginning of period

 

$

(39,308)

 

$

(39,737)

 

$

429 

 

$

(38,442)

 

$

(38,898)

 

$

456 

Amortization

 

 

113 

 

 

149 

 

 

(36)

 

 

(32)

 

 

31 

 

 

(63)

Balance, end of period

 

$

(39,195)

 

$

(39,588)

 

$

393 

 

$

(38,474)

 

$

(38,867)

 

$

393 

A. H. Belo Corporation Second Quarter 2017 on Form 10-Q     16


 





Note 9:  Earnings Per Share



The table below sets forth the reconciliations for net income (loss) and weighted average shares used for calculating basic and diluted earnings per share (“EPS”). The Company’s Series A and B common stock equally share in the distributed and undistributed earnings.







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended June 30,

 

Six Months Ended June 30,



 

2017

 

2016

 

2017

 

2016

Earnings (Numerator)

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to A. H. Belo Corporation

 

$

(805)

 

$

693 

 

$

(5,235)

 

$

61 

Less: Dividends to participating securities

 

 

43 

 

 

28 

 

 

82 

 

 

54 

Net income (loss) available to common shareholders from continuing operations

 

$

(848)

 

$

665 

 

$

(5,317)

 

$



 

 

 

 

 

 

 

 

 

 

 

 

Shares (Denominator)

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding (basic)

 

 

21,743,390 

 

 

21,614,260 

 

 

21,717,032 

 

 

21,564,200 

Effect of dilutive securities

 

 

 —

 

 

148,299 

 

 

 —

 

 

160,676 

Adjusted weighted average shares outstanding (diluted)

 

 

21,743,390 

 

 

21,762,559 

 

 

21,717,032 

 

 

21,724,876 



 

 

 

 

 

 

 

 

 

 

 

 

Earnings Per Share from Continuing Operations

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.04)

 

$

0.03 

 

$

(0.24)

 

$

0.00 



Holders of service-based RSUs participate in A. H. Belo dividends on a one-for-one share basis. Distributed and undistributed income associated with participating securities is included in the calculation of EPS under the two-class method as prescribed under ASC 260 – Earnings Per Share.



The Company considers outstanding stock options and RSUs in the calculation of earnings per share. A  total of 615,222 and 499,726 options and RSUs outstanding as of June 30, 2017 and 2016, respectively, were excluded from the calculation because the effect was anti-dilutive. 



Note 10:  Contingencies



Legal proceedings.